As a deficit reduction and economic policy, austerity never made any sense. It’s ridiculous to think that by cutting budgets in a time of economic recession, you can shrink budget deficits in the future, ultimately increasing economic growth. The policy defied common sense; unfortunately, the powers-that-be fully embraced it, to the misery of countless millions in Europe and here in the U.S. I’ve written about it previously, in a post two years ago entitled Austerity = Suffering and last year, Greece brutalized by more austerity.
Despite the evidence, these powers-that-be have continued to stubbornly cling to this failed policy, imposing it on more countries (Cyprus anyone?), sharing the misery with countless millions more. And finally, concrete evidence has emerged that points out serious flaws in the economic research that underpinned austerity, driving what one hopes is a final stake in the heart of this nonsensical and destructive policy.
As pointed out yesterday in the Roosevelt Institute’s blog The Next New Deal by Mike Konczal, known as @Rortybomb on Twitter, original austerity research basically twisted the facts using selective data and unconventional weightings to reach a flawed conclusion. Rather than forcing economic growth downward, higher budget deficits (for countries carrying a debt-to-GDP ratio of more than 90 percent) produce an average 2.2 percent GDP rate not the .1 percent cited in the original research.
As Konczal notes, “The debt needs to be thought of as a response to the contingent circumstances we find ourselves in, mass unemployment, a Federal Reserve desperately trying to gain traction at the zero lower bound, and a gap between what we could be producing and what we are.” Exactly! When an economy is on it’s knees, stimulus spending, even when it creates significantly higher deficits, is needed to bring it to it’s feet again. Then, once the economy has recovered, deficit reduction efforts, can, and should resume. And when they do, they will be more productive and effective, because they will be in the context of a healthy economy, which will contribute the efforts. See the Clinton years.
By depriving an economy of stimulus during hard economic times, it is doomed to exist in a sub-basement of economic recession, if not depression (see Ireland, for example) that will actually increase deficits. The austerity mindset reacts to these higher deficits with even more austerity, creating a vicious cycle which makes it incredibly difficult for an economy to gain any positive traction and causing untold suffering to millions who lose their jobs and are forced to live on the margins.
Beyond the substantiative problems of this research, Matt O’Brien, aka Obsolete Dogma on Twitter, in an article “The Great Debt Delusion: How Math Keeps Proving Austerity Wrong” notes that what is equally astonishing is how such a “shoddy” piece of research gained such a following in public policy and political circles. It’s depressing that so much misery has been inflicted on so many people based on a misguided, flimsy policy.
The question is whether these revelations will actually do anything to dissuade those who pursue them with so much vigor. I’m guessing not, which means it is the responsibility of the electorate here and in Europe to show them the door.